Tips on How to Save for Retirement
Income Planning and Savings in Order to Retire Comfortably
Aug 21, 2009
Younger people may put off saving for retirement because they are enjoying life and old age is far away in the distant future. Later on, money goes on other things that need to be paid for, such as kids' education, mortgage payments and so on, before long a person is standing at the threshold of retiring without enough money. Avoid this by planning carefully for retirement.
What is An Individual Retirement Account?
An Individual Retirement Accounts, or IRAs, is basically a retirement savings plan with restrictions. The main advantage of an IRA is that tax payment is deferred on the earnings and contributions are tax deductible. The tax law imposes stiff penalties on funds withdrawn before 59.5 years of age. There are different types of IRAs, each with their own tax implications and eligibility requirements.
Ask about the Roth 401(k) if it is preferable to pay taxes now and not have to worry about them in the future.
Tips on Saving for Retirement
- Never be tempted to dip into retirement savings. Principal savings as well as interest will be lost.
- Do not take a lump sum distribution when changing jobs, either move the money to a rollover IRA or transfer retirement savings directly into the new employer’s retirement plan.
- Very little happens without setting and sticking to goals – formulate a financial plan for retirement and list all income and expenses. Address any possible shortfalls by saving extra each month.
- Work hard to pay off a mortgage so that there will not still be home repayments when it is time to retire.
- Read all pension fund statements received, 401 (k), or IRA to catch mistakes before it is too late. Consider consolidating IRAs.
- Max out on all eligible tax-deferred retirement savings (e.g., 401(k) plan, IRAs).
- Get help from financial experts or consider enrolling in a money management class to learn how to invest and make money grow.
- If close to retirement age, consider working longer or taking on part-time work to increase income.
- Take into consideration the different investments vehicles and understand how pensions and retirement savings are invested. Most financial planners agree that if a person is close to retirement, the safer option is to invest conservatively rather than making aggressive choices that carry more risk.
Don't assume there will be enough money to fund retirement or assume that expenses will be less because the mortgage is paid for and the kids are out of the house. Retirement income planning does take effort. If it seems overwhelming, seek the help of a reputable financial professional to ensure that retirement is a time of peace and contentment rather than a time of crippling financial strain.
Source:
The Retirement Catch-Up Guide by Ellen Hoffman
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